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Shell-Operated Nigeria Pipeline Said to Be Under Repair

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Screen Shot 2016-06-07 at 23.34.38Javier Blas: June 7, 2016

Repair work on a key Nigerian crude oil pipeline operated by Royal Dutch Shell Plc is ongoing under very tight security, according to a person familiar with the operations.

The repairs were being carried out in two different sites of the Forcados export pipeline, which was hit by explosions in February and again last week, said the person, who asked not to be named because of security concerns. Earlier Chief Financial Officer Simon Henry said the company had to withdraw repair crews last week after a second attack against the 48-inch Forcados pipeline that links onshore storage tanks with an offshore port.

“We cannot operate or repair if our people are threatened,” Henry said in an interview at Shell’s annual capital markets day.

Producers in Nigeria face a new level of insecurity as a wave of violence hits the oil-rich Niger Delta, leaving output at its lowest in nearly three decades. The latest attacks have been more destructive than in the past, Henry said.

“There is clearly better organization and targeting,” according to the CFO.

Delta Avengers

The militants, which back in 2009 were loosely grouped around the Movement for the Emancipation of the Niger Delta, now call themselves the Niger Delta Avengers. They claim to represent the people of the region, portraying themselves as freedom fighters rather than rent seekers.

The Avengers aim to bring production by foreign oil companies in Nigeria to “zero,” according to a statement on a recently created website. The site’s authenticity couldn’t be verified by Bloomberg News.

Brent for August settlement rose 89 cents to $51.44 a barrel on the London-based ICE Futures Europe exchange on Tuesday, the highest close since Oct. 9.

The resurgent conflict in Africa’s largest economy has a long history, interweaving corruption and poverty with regional rivalries and presidential politics, but at its core is money.

Between 2006 and 2009, when the oil-rich region was rocked by similar campaign of violence, the then president, Umaru Musa Yar’Adua, came up with a controversial solution: He offered a pardon and monthly stipends to fighters willing to disarm. After his death in 2010, former President Goodluck Jonathan doubled down on the strategy, awarding security contracts worth millions of dollars to rebel leaders, who went from blowing up pipelines to protecting them.

Buhari Change

Thousands of fighters accepted the presidential amnesty, joining new private security companies formed by their leaders and enjoying monthly payments from the government. The revolt, which at its worst point had sunk oil production by about a third to 1.65 million barrels a day, quickly ended.

President Muhammadu Buhari, a 73-year old former general elected last year on an anti-corruption platform, ended all pipeline security contracts and reduced the monthly stipends. In a wave of attacks this month, the militants responded by blowing up key pipelines, cutting oil output to a 27-year low of 1.4 million barrels a day.

Comprehensive Solution

The Forcados, Brass River and Bonny Light export terminals in Nigeria are under force majeure, a legal term that allows companies to walk away from export commitments after several attacks. The Escravos terminal is delaying shipments after attacks against facilities operated by Chevron Corp., while a force majeure for Quao Iboe was lifted last week after Exxon Mobil Corp. carried out repairs.

The militants — perhaps building on the knowledge of their operations won through their security contracts — are striking firms including Shell Plc, Eni SpA and Chevron where it really hurts: key oil-gathering hubs that knock down thousands of barrels of production at once as well as difficult-to-repair underwater pipelines.

While the government has promised to quell the insurgency through military force, Shell said a more comprehensive solution was needed. 

“The issue can not be resolved through security only,” Henry said.

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